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Sweet Dividend Yields Found in the Beverage Industry

The non-alcoholic beverage industry is a competitive arena
dominated by two main players, and there are some solid dividends
to be found. This glance showcases four dividend payers and two
non-dividend payers for comparison purposes.

Coca Cola (
KO
)
With popular brands such as Coca Cola, Sprite, Minute Maid, and
Powerade, the Coca Cola Company is the largest non-alcoholic
beverage company in the world, and has one of the strongest brands
in existence. Their brand strength, combined with their vast
international exposure, gives the company a large economic moat.
The balance sheet is very strong, with a low debt/equity ratio of
only 0.16. Goodwill on their balance sheet only makes up a small
part of shareholder equity, and their interest coverage ratio is in
the upper 20's.

Unfortunately, all of these upsides come with a premium stock
price. Coca Cola stock was monstrously overvalued several years
ago, and although the price still isn't particularly low, it is at
least reasonable given their strong economic position. One isn't
likely to vastly outperform the market with Coke stock, but it
could make for a great long-term defensive holding that grows its
dividends year after year. Dwindling public interest in carbonated
beverages is offset by their international market exposure, and the
company also owns several juice brands and other healthier drinks.
Based on this year's stock price run-up, it might be prudent to
look for stock price dips.

Pepsico (
PEP
)
Pepsico is number two in beverages, with products like Pepsi,
Tropicana, and Gatorade, but is also diversified into snack foods.
While Coca Cola sticks specifically to beverages, Pepsico also owns
food brands such as Lays chips and Quaker oats. This has the side
effect of reducing Pepsico's profit margin, since beverages carry a
higher margin than snacks. Pepsico has a profit margin of around
13% compared to Coca Cola's profit margin of 24%. Pepsico, however,
has been experiencing slightly higher growth, and over the last
several years has been taking the initiative that Coca Cola has
been following in several instances. Pepsico bought one of its
bottlers, and then Coca Cola bought one of its bottlers. Pepsico
started focusing on including healthier brands before Coca Cola.
Meanwhile, Pepsico's stock valuation is the lower of the two.

Pepsico had balance sheet strength near that of Coca Cola until
2010 when Pepsico took on more debt. The LT Debt/Equity is now 0.93
and the interest coverage ratio is approximately 10. Goodwill is
equal to nearly three-quarters of Pepsico's total shareholder
equity. It's not a bad balance sheet by any stretch, but worth
comparing to Coca Cola for stock valuation purposes.

Dr. Pepper Snapple Group (
DPS
)
The Dr. Pepper Snapple Group was spun off from Cadbury Schweppes in
2008, and therefore doesn't provide investors with as much
historical information regarding dividends and growth as companies
like KO and PEP. The company offers a diversified line-up of
beverage brands such as Dr. Pepper, Snapple, Mott's, Hawaiian
Punch, and A&W Root Beer.

Even with a substantial market capitalization of $8 billion, the
company is still significantly smaller than both Pepsico or Coca
Cola, and they don't have the kind of international exposure or
distribution networks that those two giants have. The company's
balance sheet is reasonable, yet far behind that of Coca Cola and
slightly behind that of Pepsico, with a LT Debt/Equity ratio of
0.99 and an interest coverage ratio of less than 10. DPS may make
for an interesting value pick, but for those desiring more peace of
mind and less portfolio maintenance, Coca Cola or Pepsico are
probably the better choices.

Hansen Natural (
HANS
)
Hansen Natural is not a dividend payer, but is included in this
industry glance for completeness and comparison. The company holds
the strong brand of Monster energy drinks, and offers a line up of
natural sodas, juices, and teas. The theme of their products is
that they use more natural ingredients.

The company has a flawless balance sheet (zero long-term debt)
and decent growth prospects, but its market capitalization of less
than $5 billion makes it a riskier investment than some of the
larger companies. Hansen's net margin is lower than that of Coca
Cola. The five-year EPS growth in comparison to the current P/E
shows that the company has a PEG ratio of under 1, but growth is
likely to slow down (as it has in 2010). With its strong balance
sheet and growth potential, this one is best left for growth
investors and passed by those seeking a dividend.

National Beverage Corporation (
FIZZ
)
National Beverage Corporation, with a market capitalization of less
than $1 billion, offers a variety of value beverage brands such as
Shasta and Faygo. Due to their cheaper pricing, the company has a
much smaller net profit margin than the larger companies, at less
than 6%. Revenue growth has been steady but slow, and most of the
EPS growth has come from improving margins, which can only last for
so long until it must slow down. The company has paid irregular but
large special dividends. The balance sheet is very strong with zero
debt and little goodwill. Free cash flow has generally exceeded net
income over the last several years.

The company paid a $1.35 dividend in January 2010, amounting to
a dividend yield in the ballpark of 10%. The company has declared a
$2.30 dividend to be paid in February 2011, which amounts to a
dividend yield of over 16%. The dividend history has shown that
they have paid some pretty substantial dividends, but not every
year, and there was a large dividend gap between 1996 and 2004.
This company might be worth a more thorough look for those
interested in smallcaps despite not being a regular dividend
payer.

Cott Corporation (COT)
Cott Corporation sells a variety of carbonated beverages, juices,
energy drinks, and teas. The company, like Hansen, does not pay
dividends. Company stock was drastically overvalued several years
ago and earnings have been highly erratic over this period.
Five-year EPS growth isn't a worthwhile number due to the
irregularity.

LT Debt/Equity is 1.19 and the interest coverage ratio is only
around 3. The valuation is pretty low, but seems deserved due to
the lack of an economic moat and unappealing balance sheet. An
obvious pass for dividend investors.

The above chart uses year-end stock prices for yield calculation
on an annual basis. KO and PEP have paid an increasing number of
regular dividends, with the yield of PEP gradually catching up to
KO and surpassing it. DPS paid a dividend in the fourth quarter of
2009, and then paid four quarterly dividends in 2010. The dividends
in the chart for FIZZ are based on the declare date.

Comparison Table
As shown, this industry offers the two blue-chip choices of Coca
Cola and Pepsico to give investors regular, growing, and defensive
dividend income. Their yields certainly aren't the largest around,
but there is substantial dividend growth. Dr. Pepper Snapple is
worth keeping an eye on, and National Beverage Corporation is an
interesting shareholder-friendly smallcap that might deserve a
deeper look.

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